Here’s how much of your income goes to servicing debt each month in South Africa

 ·6 Jun 2020

Debt counsellor DebtBusters’ quarterly debt index shows that even before the lockdown, South Africans were facing increased financial strain, taking on more debt to supplement incomes that had declined in real terms.

The report for the first quarter of 2020 found that consumers who signed up for debt counselling had nominal incomes that were 1% higher than in 2016, but because of cumulative inflation growth of 19%, real incomes declined by 18% – a massive blow to the average South African consumer.

DebtBusters chief operating officer, Benay Sager, said it’s clear that consumers are borrowing more to make up for the shortfall in real income growth.

There has been a substantial increase in average borrowing to supplement the decline in net income, with total debt up 33% on average compared to the same period in 2016. Total debt for top earners increased by 63% compared to Q1 2016 levels, Sager said.

The number of consumers with home and vehicle finance seeking debt counselling has grown substantially. Those taking home R20,000 or more a month had a debt to annual income ratio of 142%, which is unsustainable.

The number of credit accounts consumers have when they apply for debt counselling indicates that consumers are getting over-indebted faster but are also seeking help sooner, said Sager.

Reflecting the current economically difficult times, DebtBusters said its Q1 2020 clients had:

  • 22% of their debt as Vehicle Finance debt (up from 20% in Q1 2016);
  • 32% of their debt as Home Loan debt (up from 30% in Q1 2016);
  • fewer credit agreements (6.5 on average) compared to previous years (was 7.4 agreements in 2016), indicating that consumers are becoming over-indebted and seeking help more quickly compared to previous years.

Consumers, especially those with an asset base such as a home and vehicle, are under increasing financial strain. This is evident from the fact that incoming clients:

  • Required 64% of their net income to service their debt every single month;
  • Had debt to income ratio of 114% on average – those earning a net income of R20,000 or more had a debt to annual income ratio of 142% – which is not sustainable.

It is clear that in absence of meaningful increase in real income growth, SA consumers are supplementing their income with more debt on a large scale, said Debtbusters.

It said that compared to 2016, those clients who applied for debt counselling in Q1 2020 had negative real income growth: Nominal incomes were 1% higher compared to 2016 levels; when cumulative inflation growth of 19% is factored in for the same period, real incomes shrank.

It said that the negative growth in net incomes was supplemented by 33% higher total debt on average – higher income earners’ total debt levels in Q1 2020 are 63% higher compared to same income group from Q1 2016.

Percent of net income that was required to pay debt

Debt exposure to net income ratio

Read: Bank mortgage lending is drying up in South Africa

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